WHAT IS STATUTORY ADJUDICATION?

In an ideal world all construction contracts would run smoothly, projects would all complete on time and there would be no issues with costs or quality of work. However, as we all know there are, unfortunately, circumstances where things do go wrong and parties to a construction contract may need to resolve disputes. There are various forms of dispute resolution and these include: 

• Negotiation; 

• Mediation; 

• Adjudication; 

• Arbitration; and 

• Litigation. 

Adjudication involves the appointment of an adjudicator who will consider the facts and provide a determination of an issue. In Gibraltar, parties to a construction contract are free to agree that any dispute should be referred to adjudication; by contrast, the position in the UK is that adjudication is a statutory right which means that a party has a legal right to refer a matter to adjudication at any stage without the other side having to agree to this.

THE ORIGINS OF STATUTORY ADJUDICATION IN THE UNITED KINGDOM

Prior to the 1990’s arbitration was the principal means of resolving construction disputes in the UK. Arbitration came to be seen as unduly slow, expensive, and, therefore, incapable of providing an effective remedy for contractors and sub-contractors who were unable to obtain payment for work carried out in a timely fashion whilst a dispute was ongoing. In 1994, Michael Latham published a report which came to be known as The Latham Report which found that ‘adjudication should be the normal method of dispute resolution’. The Latham Report’s recommendation that adjudication should apply to all construction contracts was accepted by the UK Parliament which passed the Housing Grants, Construction and Regeneration Act, 1996 (“the Act”) making the option to refer a construction dispute to adjudication a legal right.

THE RIGHT TO INVOKE ADJUDICATION

Only disputes relating to ‘construction contracts’ are covered by the Act. ‘Construction contracts’ are defined as an agreement for carrying out construction operations including sub-contracted work and architectural design or surveying work or advice on building, engineering or decoration. ‘Construction operations’ is widely defined but excludes a long list of operations including, amongst others, installation of plant for power installation or water or effluent treatment. Statutory adjudication is only applicable to contracts which are in writing. 

The Act is not restricted to payment disputes; disputes may relate to issues such as time, quality and any other matter giving rise to a difference between the parties. Significantly, the Act states that a party must be enabled to give notice of a dispute ‘at any time’, meaning that parties do not to have to wait until after completion of the contract to refer the matter to adjudication.

PROCESS AND PROCEDURE

The process involved in having a matter adjudicated is as follows: 

Step 1: The “Referring Party” will provide the other side with a written “Notice of Adjudication” setting out their intention to refer the dispute to adjudication. The Notice will provide a brief description of the dispute and the nature of the redress sought. 

Step 2: The Referring Party is to identify an adjudicator who may be: (a) named in the contract; (b) appointed by a Nominated Body named in the contract; or (c) appointed by any other Adjudicator Nominating Body. The person selected to adjudicate the matter should indicate their willingness to act within 2 days. 

Step 3: The Referring Party is to serve a Referral Notice on the Adjudicator and on the other party 7 days after the Notice of Adjudication has been served. The Referral Notice will contain extracts from the contract as well as any other information relied upon. The other side will then provide their response. At this juncture there is the possibility of having an all party meeting but this is optional. 

Step 4: The adjudicator is to reach his decision not later than: (a) 28 days after receipt of the Referral Notice; (b) 42 days after receipt of the Referral Notice if the Referring Party consents; or (c) such longer period as both parties may agree.

KEY PRINCIPLES

The Act made wide ranging changes to the construction industry in the UK at a time when these changes were much needed. For example, it outlawed pay when paid clauses and introduced statutory payment provisions. Specifically in relation to adjudication, the Act introduced a mechanism which provided parties with a legal right to refer a dispute (at any time during the life of the contract) and have this determined within 28 days of it being referred to the adjudicator allowing the parties to continue with the project once the dispute has been resolved. 

The adjudicator’s decision is temporarily binding on the parties (until finally determined by a court or arbitrator) but in practice, the parties often accept the adjudicator’s determination as final meaning that there are no further proceedings. Statutory adjudication provides a quick and cost effective way to settle differences which ensures that a dispute between the parties does not lead to undue delays in completing the project. Statutory adjudication is less cumbersome and formal than arbitration and litigation with some going as far as to suggest that it provides “quick and dirty justice”. The reality is that statutory adjudication has worked and it is presently the most widely used form of dispute resolution in the UK construction industry.

STATUTORY ADJUDICATION IN GIBRALTAR

The overwhelming success of statutory adjudication has led to it being adopted in a number of common law countries such as the Republic of Ireland, Australia, New Zealand and Singapore. 

Would statutory adjudication work in Gibraltar? There is no reason why it would not and if it ensures that the construction industry remains buoyant and provides an effective method of resolving disputes then surely it is something worth considering. Given the construction boom in Gibraltar and the proliferation of small construction companies perhaps the timing is now perfect for Parliament to consider such legislation.